Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21
Financial Market Forecasts 2021: Navigation in Uncharted Waters - 10th Jan 21
An Urgent Message to All Conservatives, Right-Wingers and Patriots - 10th Jan 21
Despite Signs to the Contrary, Gold Price at or Near Top - 10th Jan 21 -
Ultimate Guide On The 6 Basic Types Of Index Funds - 10th Jan 21
Getting Vaccinated at TESCO - Covid-19 Vaccinations at UK Supermarket Pharmacies and Chemists - 10th Jan 21
Cheers for the 2021 Stock Market and These "Great Expectations" - 9th Jan 21
How to Plan Your Child With Better Education - 9th Jan 21
How To Find The Best Casino - 9th Jan 21
Gold Is Still a Bargain Buy - 8th Jan 20
Gold Price Set to Soar as Hyperinflation Looms - 8th Jan 21
Have Big Dreams? Here's How to Pay for Them - 8th Jan 21
Will the Fed Support Gold Prices in 2021? - 8th Jan 21
Stocks trading strategies for beginners - 8th Jan 21
Who is Buying and Selling Stocks in 2021 - 8th Jan 21
Clap for NHS Heroes 2021 as Incompetent Government Loses Control of Virus Again! - 8th Jan 21
Ultimate Gaming and Home Working PC System Build 2021 - 5950X, RTX 3080, Asus MB - Scan Computers UK - 7th Jan 21
Inflation the bug-bear looking forward through 2021 - 7th Jan 21
ESG ETF Investing Flows Drive Clean Energy to Fresh Highs - 7th Jan 21
5 Financial Market Surprises in 2021 - 7th Jan 21
Time to ‘Reset’ Your Investment Portfolio in 2021? - 7th Jan 21
Bitcoin Price Collapses almost 20% at the start 2021 - 7th Jan 21
Fed Taper Nervous Breakdown - 6th Jan 21
What Will the U.S. Dollar Ring in for 2021? - 6th Jan 21
Stock market frenzy- Ride the bandwagon but be sure to take along some gold coins - 6th Jan 21
Overclockers UK Custom Build Gaming System Review Heat Test and Final Conclusion - 6th Jan 21
Precious Metals Resuming Bull Market, Gold, Silver, GDX Trend Forecasts 2021 - 5th Jan 21
Trump’s Iran-COVID-Gate Anniversary  - 5th Jan 21
2021 May Be A Good Year For The Cannabis / Marijuana Sector - 5th Jan 21
Stock Market Approaching an Important Target - 5th Jan 21
Consumer Prices Are Not Reflecting Higher Inflation; Neither Is The CRB - 5th Jan 21
NEW UK Coronavirus PANIC FULL Lockdown Imminent, All Schools to Close! GCSE Exams Cancelled! - 4th Jan 21
The Year the World Fell Down the Rabbit Hole - 4th Jan 21
A Year Like No Other for Precious Metals… and Everything Else - 4th Jan 21
The Stocks Bull Market is Only Half Completed - 4th Jan 21
An In- Depth Look At Gold Price Trend - 4th Jan 21
Building America Back After a Dark Covid Winter - 4th Jan 21
America's Dark Covid Winter Ahead - 4th Jan 21
Buy a Landrover Discovery Sport in 2021? 3 Year Driving Review - 3rd Jan 21
Stock Market Major Peak in Early April 2021 - 3rd Jan 21
Travel and Holidays 2021 - Flight Knight Cabin Bag Review - 3rd Jan 21
�� Happy New Year 2021 Fireworks and Drone Light Show from London and Sheffied - BBC�� - 2nd Jan 2
The Next IMMINENT Global Catastrophe After Coronavirus - 1st Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

G20: SURPASSING THE 2nd GLOBAL STEEL CRISIS

Commodities / Steel Sector Apr 26, 2017 - 01:04 PM GMT

By: Dan_Steinbock

Commodities In the 2016 G20 Summit, advanced economies accused China for steel overcapacity. Before the Hamburg Summit, similar charges have surfaced. Yet, the postwar era has witnessed two steel overcapacity crises. The current debate cannot afford to ignore the past lessons. As the global steel sector is coping with an overcapacity crisis, multinational industry giants are struggling with consolidation and adjustment.


In China, steel output climbed highest on record in March, while the faster-than-anticipated growth in the first quarter was fueled by the use of steel in the construction sector. In the United States, President Trump’s “Buy American, Hire American” executive order was expected to have little impact on U.S. steel, which left steel executives apprehensive and trade unions frustrated. Meanwhile, Secretary of Commerce Wilbur Ross announced an investigation to determine whether Chinese and other foreign-made steel is a threat to U.S. national security.

While steel output in India was forecast to more than double by 2031, Tata Steel, one of the industry giants, sought to write a cheque of $663 million to its UK pensioners as a one-settlement to support future consolidation, even as its proposed merger with the steel operations of Thyssenkrupp were at risk because of complex negotiations around pensions and opposition from German trade unions.

As Japan, the second largest steel producer in the world, has alleged that duties imposed on steel imports by India violate trade norms of the World Trade Organization, the WTO is setting up a panel to resolve the dispute. Indeed, as The 19th Global Trade Alert Report concluded, “protectionism in [the steel] sector has been ratcheting up since 2010.” Yet, the G20 spotlight in the steel crisis has focused on China, despite the international nature of the disputes.

Steel overcapacity crises in the 1970s and today

Even before the 2016 G20 Summit in Hangzhou, then-President Obama was urged by US lawmakers, unions and trade associations to address China’s steel overcapacity. He was seconded by the EC president Jean-Claude Juncker, Japan’s Prime Minister Shinzo Abe and his Canadian counterpart Justin Trudeau.

All G7 nations seized the G20 Summit to spotlight China’s steel overcapacity but it was not the first time that these economies were struggling with such a crisis.

“Recent years… have been very difficult ones for the steel industries of the United States and Europe. Production in both regions has dropped by more than one-third and employment has fallen even more. In recent years there have been either large losses or small profits.” That could have been one of the G7 critics in Hangzhou. But it wasn’t. It was David Tarr, a senior economist with the US Federal Trade Commission, who in 1988 was examining the steel crisis in the US and Europe.

Since the postwar era, crude steel production has grown in three phases. Prior to mid-70s – often called the “golden era” of the advanced economies – global steel production grew an impressive 5% annually driven by Europe’s reconstruction and industrialization, and catch-up growth in Japan and the Soviet Union - according to data by International Iron and Steel Institute, Eurostat, and American Iron and Steel Institute.

As this boom period ended with two energy crises in the 1970s, stagnation ensued and global steel demand barely ticked 1.1% annually. In the US, the challenges of the Rustbelt led to labor turmoil, offshoring and the Reagan era. In the UK, similar turmoil paved way to the Thatcher years. Some steel growth prevailed but mainly in the Asian tiger economies of Korea and Taiwan, which were too small to drive global growth, amid the Soviet collapse and the Japanese asset crisis in the 1990s.

A third period ensued between 2000 and 2014 as China’s industrialization led to massive expansion in steel production and demand fueling annual output growth by 13%. Between 1950 and 1980, world crude steel production climbed from 189 milllon tons to 715 million tons. Until the mid-1990s, it barely increased. But in the past two decades, it has more than doubled to 1,670 million tons. Today, China accounts for almost half of the total - as the US did in 1950.

While China’s industrialization and urbanization may continue another 10-15 years, the most intensive expansion is behind. As a result, the sector is facing overcapacity and stagnation for 5-15 years.

Policy responses in the 1980s and today

In early 2016 European Chamber of Commerce in China released a report about Chinese steel overcapacity, which included a section on the “history of overcapacity." In addition to its recommendations, it urged Beijing to take stock of the late 1990s, when Premier Zhu Rongji shut down state-owned enterprises, which left 40 million workers redundant. But would Zhu’s tough medicine work in contemporary China?

When Zhu began his stabilization program in the mid-90s, China’s urbanization rate was only 30% and there was great potential for industrialization, urbanization, export-led expansion and catch-up growth. Advanced economies were not yet mired in secular stagnation. Between 1995 and 2015, China shifted more than 300 million people to the cities. Assuming stability and steady growth, China can still move more than 290 million to its cities between 2014 and 2050. But neither double-digit catch-up nor export-led growth are any longer possible.

Did the United States and Europe opt for the kind of defaults they now advocate to China? No. The recommendation to permit massive defaults in China is precisely not the way the US and Europe resolved their postwar steel crises. Instead, the open postwar trading regime took a step back as more aggressive trade practices arose in the US and Europe.

Washington and Brussels adopted fairly similar external policy measures but quite different domestic measures. In the US, policymakers avoided direct intervention in the domestic market and allowed large losses suffered its domestic firms to result in huge plant closures. In contrast, Brussels initially imposed production quotas and minimum prices; later, it sought to restrain subsidies and investment, while reducing capacity. Brussels was able to smooth the process of transformation, but mainly in the short-term. As both Washington and Brussels sought to protect their market through non-tariff barriers, they embraced protectionist external policies.

In the next five years, China's steel sector plans to shrink capacity by 100-150 million metric tons. If current overcapacity is reduced by 30% in targeted sectors – steel, coal mining and cement – these cuts would translate to layoffs of up to 3 million workers in the coming 2-3 years. In the coal and steel sectors, the government hopes to allocate $15.4 billion in the next two years to help laid-off workers find new jobs, particularly in the service sector.

Four decades ago, the leading industrial nations opted for costly protectionist policies in the steel sector. In contrast, China is eager to sustain globalization and to accelerate world trade and investment, even as it has rolled out the One Belt One Road (OBOR) initiative and the creation of the Asian Infrastructure Investment Bank and the BRICS New Development Bank.

Applying the right lessons

What are the lessons of the past crises and these new developments? Steel overcapacity crises are multilateral and have global repercussions. Any effort to penalize a single economy reflect crisis participants’ unilateral partisan strategies. Such efforts are part of the problem, not the solution.

Second, the first steel overcapacity crisis involved major advanced economies, which opted for solutions that harmed world trade and investment and thus global growth prospects. Such policies should be avoided today.

The current steel crisis involves all major economies, while the leading role belongs to China, the largest emerging economy. As China continues to support world trade and investment, its role is vital in global growth prospects. Emerging economies should not be penalized for rapid economic development.

Fourth, through the Silk Road initiatives (OBOR) in particular, Chinese overcapacity can serve industrialization and modernization in emerging economies that participate in the initiatives - which also offer opportunities to advanced economies.

In the steel crises, international media and partisan observers rely on aggregate data. However, this data should also be assessed (a) in terms of the level of economic development, because steel demand tends to be more intensive in earlier phases of development, and (b) in per capita terms, because large economies have larger steel demand by default. In light of these qualifications, the rank of top producers is not led by emerging economies (see Figure).



Finally, any sustained success in overcoming the second global steel overcapacity crisis must be based on multilateral cooperation with all major steel producers that will seek to reduce overcapacity in the largest aggregate producing countries but will also ensure emerging economies’ opportunities for rapid economic development in the future.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

© 2017 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules